Exam 10: Forecasting Financial Statements

The analyst can capture projected levels of operating activity by using ______________________________ to develop forecasts for individual assets.

Firms which have differentiated ___________________________________ for its products may have a greater potential to increase prices.

A company that has a cost structure in which its costs grow at a lesser rate than its sale enjoys ___________________________________.

If a firm competes in a capital-intensive industry with excess capacity, all of the following are true except:

When projecting ____________________, the analyst should consider economy-wide factors such as the expected rate of general price inflation in the economy.

To develop forecasts of individual assets, the analyst must first link historical growth rates for individual assets to historical growth rates in sales or other ___________________________________.

Nichols and Wahlen's 2004 study showed that superior forecasting provides the potential to earn superior security returns. Nichols and Wahlen's findings indicate

Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except:

Financial statement forecasts are important analysis tools because forecasts of ______________________________ play a central role in valuation and many other financial decision contexts.

Common-size financial statements recast each statement item as

The following balance sheet and income statement pertain to Goode Corp., using the following assumptions complete a forecasted 2013 income statement:

Card Sharks, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance equivalent to approximately 30 days of sales. Sales in 2011 amounted to $352,412 and the company expects growth in 2012 of 33% and in 2013 of 40%. - Given the information provided about Card Sharks, what is the company's 2013 projected annual sales?

All of the following are the fundamental bases for future payoffs to equity shareholders and share value except:

The authors set forth a seven-step forecasting game plan for preparing pro forma financial statements. Discuss the seven steps necessary to prepare the three principal financial statements.

As an analyst it is important when projecting sales to make estimates about future changes in sales volume. Compare how you might make estimates about future sales value for a company in a mature industry and one in a rapidly growing industry.

The following information about Douglas Corp.'s Accounts Receivable and Sales are presented below: Required: a. Using this information, forecast Dougas Corp.'s the growth in Accounts Receivable for years $2013-2017$ . b. What problem does a constant A/R tunover assumption cause? c. Provide a solution to the problem caused by a constant A/R turnover assumption

Financial statement forecasts rely on additivity within financial statements and articulation across financial statements. Given this information sales growth forecasts will most likely affect growth in

Saunders Corporation manufactures consumer electronics products. Selected income statement data for 2009 and 2010 follow (amounts in millions of dollars): Saunders Corporation (amounts in millions of dollars) 2009 2010 Sales 8,296 8,871 Cost of Goods Sold (5,890) (6,290) Selling and Administrative Expenses (1,788) (1,714) Operating Income before Income Taxes 618 867 Required a. The analyst can sometimes estimate the variable cost as a percentage of sales for a particular cost (for example, cost of goods sold) by dividing the amount of the change in the cost item between two years by the amount of the change in sales for those two years. The analyst can then multiply total sales by the variable-cost percentage to determine the total variable cost. Subtracting the variable cost from the total cost yields the fixed cost component for that particular cost item. Follow this procedure to determine the cost structure (fixed cost plus variable cost as a percentage of sales) for cost of goods sold for Saunders. b. Repeat requirement a. for selling and administrative expenses. c. Saunders Corporation discloses that it expects sales to grow at the following percentages in future years: Year 1, 12 percent; Year 2, 10 percent; Year 3, 8 percent; Year 4, 6 percent. Project sales, cost of goods sold, selling and administrative expenses, and operating income before income taxes for Saunders for Year 1 to Year 4 using the cost structure amounts derived in requirements a. and b. d. Compute the ratio of operating income before income taxes to sales for Year 1 through Year 4. e. Interpret the changes in the ratio computed in requirement d. in light of the expected changes in sales.

The objective of forecasting is to develop

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that